One of the options that we consider when we need cash is a personal loan. Due to Internet convenience, we can shop personal loans or get personal loan online . They seem to be very convenient and help us get out of our financial binds for the time being. Like all loans, there are advantages to having quick access to these personal loans and being able to have choices online from the lender you prefer. All appearances of these personal loans promote the benefits of them. However, there are disadvantages to taking out a personal loan, as they are different loans from conventional loans.
Additional Fees
One of the biggest disadvantages of personal loans is the additional fees that are affiliated with the contract. These fees include interest that is dependent upon credit scores. For those who suffer from poor credit, they are already at a disadvantage due to their personal credit. Also, since personal loans do not require collateral in most cases, lenders are able to fluctuate and charge rates at their discretion.
Also, these lenders have the option to refuse a full payment if the customer wants to pay it off early. This allows the customer to continue paying interest whereas, in a traditional loan, there is the option to pay off loans early and forfeit additional interest fees. For those that will allow the loans to pay off early, then they have the ability to charge a penalty for breaking contract.
Another fee that is gaining popularity with personal loans is the delayed interest fee. Lenders are charging small and affordable monthly payments for a limited time that has no interest, which is beneficial to the consumer. However, after a set term such as six months or a year, a fee is applied to the accumulated interest and is due immediately. This can be drastic for someone lending money and upset all the financial progress that they have gained since accepting the loan.
Income Disadvantage
Personal loans also take in current income as a factor for determining what the interest rates are and also how much is awarded per the application. This is one of the leading disadvantages of personal loans when someone attempts to get personal loan online. The more money that is brought in may positively impact your interest rate with the personal loan. However, for those with a single income, this can pose to be quite the problem. These loan companies refer to only recent income and can use that to limit the amount of borrowing which can impact the need for the personal loan and make you consider whether or not the loan is even worth it. The fact remains that if you are making more money than the chances of you needing to borrow money is slimmer than those who are making significantly less money.
Credit Scores
One of the biggest disadvantages of personal loans is credit scores. Personal loans are available to consumers who have credit scores ranging from bad to good. The worse the credit scores the higher the interest rate and higher monthly payments. Credit scores can come down with a single missed payment, which can slump your credit score and make the difference between the percentage rates. Credit scores follow consumers around and are used at any point there is a need to borrow money or purchase something through monthly installment plans. Personal loans do not discriminate against the credit score but instead can use to their advantage to coerce larger fees and interests on borrowers who are limited on options and have little to no choice but to make the high monthly payment.
Conclusion
Like any other loan, personal loans suffer from disadvantages that can financially harm the consumer and discourage the application for one of these loans. Knowing the disadvantages of personal loans, however, should you find yourself in a situation where you need one, you are aware of the factors. Consider the additional fees, affected monthly income, and your credit score. Before taking out a personal loan, weigh the advantages and disadvantages based upon your personal statistics and determine if the loan is right for you.